Usually a sale of business contract will be conditional upon the lease being assigned to the purchaser, or the landlord granting a new lease to the purchaser on substantially the same terms as the existing lease. The length of the term remaining on the current lease and position of the landlord will influence the options available.
If a business is being sold as a going concern for GST purposes, it is essential that the vendor ensures that the purchaser is provided with everything necessary to run this business, including an assignment or grant of a lease for the same business premises.
We act for business vendors and purchasers in all states of Australia and can assist with all elements of the sale process, including leading. Please call us on (02) 4929 7002 or email us at email@example.com.
Assignment of a lease
If a lease is assigned, the purchaser takes over the vendor’s rights and obligations under the lease. The purchaser will be placed in the position of the former tenant for the remainder of the lease term. Unless the landlord releases the vendor from their obligations, the vendor will still be liable for their obligations under the lease.
In most cases, the terms of the lease will require the vendor to obtain the landlord’s consent to assign the lease. The landlord will usually require information about the purchaser and incoming lessee to determine their suitability as a tenant. When considering assigning a lease to a new tenant, the lessor must act reasonably. For example, a lessor may be able to refuse to assign a lease to a prospective tenant who does not have sufficient financial resources to meet their obligations under the lease.
Granting a new lease
In some circumstances, granting a new lease may be most appropriate. The purchaser will usually pay costs of preparing and negotiating a new lease. As with an assignment of lease, the purchaser will need to provide information to assist the landlord to consider whether they are an appropriate tenant. In all states except for Victoria, the landlord will register the lease if the term is over a certain threshold. In most states, this threshold period is 3 years.
The commencement date of the new lease should be the same as the completion date. The vendor will also need to surrender their current lease on the completion date.
Retail leases are governed by state legislation, which dictates how a retail lease can be assigned or transferred. Each state has different definitions of what is a ‘retail shop’, and procedures for assigning or granting a lease.
It is important that the landlord granting the lease or the assigning vendor properly prepares the disclosure documentation, and provides this to the tenant in accordance with the applicable deadline. Depending on the state, the new tenant may be able to terminate the lease or seek compensation for misrepresentations that were made before they entered into the lease. For example, in New South Wales, a tenant must be provided with a disclosure statement at lest seven (7) days before they enter the lease. New South Wales retail tenants may also terminate the lease within six (6) months and receive compensation if the disclosure statement was incomplete, false or misleading.
Butlers Business Lawyers act for business vendors and purchasers in all states of Australia. We can assist with all elements of the sale process, including advising on assignment of leases or entering into a new lease. Please call us on (02) 4929 7002 to discuss your lease and sale of business matter, or email us at firstname.lastname@example.org.
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